Not all shares are created equal.

You’ve probably heard of buying shares, but have you looked into how those shares are classified?

Common and preferred shares are two types you may come across, and each serves a specific purpose. They sit in different places on the risk spectrum and offer varying levels of control.

If you’re here to understand how these shares compare and why it matters, you're in the right place.

This article explains what you need to know. We’ll explain how they work, where they fit into a company’s structure, and what that means for investors.

What are common and preferred shares?

Shares represent a stake in a company. But not all shares come with the same benefits, rights or expectations. Let’s start with the basics.

Common shares

Common shares are what most people think of when they hear the word “shares.” They represent equity ownership in a company and usually come with voting rights. That means shareholders may get to vote on company matters, like who joins the board or whether a merger goes ahead.

If the company makes a profit and decides to share it, common shareholders may receive dividends . They may also benefit from capital gains when the share price increases over time.

But there’s no guarantee. Dividends can be reduced or skipped. Share prices can go up or down. And if the company fails, common shareholders are last in line to get their money back.

Still, they remain the most widely held type of equity, especially for everyday investors on the Australian Securities Exchange (ASX) .

Preferred shares

Preferred shares work a little differently. They sit somewhere between shares and bonds . Preferred shares investors don’t usually get voting rights, but they may receive fixed dividend payments . These are often paid before any dividends go to common shareholders.

Preferred shareholders also rank higher in the queue if the company goes into liquidation. That means they might recover more than common shareholders — though they still come after bondholders and creditors. More on that later.

A quick note on the Australian context

Globally, preferred shares have been most common in the United States , where they remain a staple in large financial institutions and some real estate investment trusts (REITs) .

In Australia, they haven’t taken off in the same way. The ASX is largely dominated by common shares. While the concept of preferred equity exists here, it’s not something most Australian retail investors regularly encounter.

Dividends: predictable or potential?

With dividends, the difference between common and preferred shares lies in the level of certainty. Here’s how they compare:

Common shares	Preferred shares
Dividends are contingent on the company's performance Paid at the company’s discretion Depend on profits and board approval Can change from year to year – or stop entirely	Usually come with fixed dividends (although they're not guaranteed) Paid out before common share dividends Often offer a set income stream Some are cumulative – missed payments are still owed Others are non-cumulative – missed payments don’t carry over

This structure gives preferred shareholders more comparative predictability, while common shareholders might see more variation – or no dividends at all.

For anyone focused on income, preferred shares may offer more stability. But as with everything in investing, there’s a trade-off. Let’s look at another factor to consider: ownership rights.

Ownership rights: who gets a say?

Common shareholders usually get a seat at the table, at least for major decisions.

They can vote on key matters like board appointments, mergers, or changes to company policies. One share typically equals one vote, which means large shareholders can hold significant sway. For smaller investors, voting rights may still offer a sense of involvement and ownership.

Preferred shareholders generally don’t have voting rights. They’re more like silent partners. They may receive steady dividends and priority access to payouts, but they don’t usually get to weigh in on how the company is run.

It’s a simple trade-off between control and predictability. Common shares offer more influence, but with less certainty around returns. Preferred shares reduce that influence, but may provide a comparatively steadier income and a clearer place in the pecking order.

Risk and return: where each sits on the capital stack

If a company runs into trouble and needs to wind up, not all investors are treated equally.

Here’s the order of repayment:

1. Creditors and bondholders
2. Preferred shareholders
3. Common shareholders

Common shareholders are last in line. That means they take on more risk, but may also see higher returns if things go well.

As we’ve said, preferred shareholders sit above them. They get paid before common shareholders, but after any debts are settled. That extra security often comes with steadier returns and potentially less price movement.

Because of this structure:

• Common shares can be more volatile but may offer greater long-term growth.
• Preferred shares tend to be less volatile, with more predictable returns.

Neither is risk-free. Each plays a different role in a company’s structure and carries its own mix of risk and reward.

Use cases: why companies and investors choose them

Common and preferred shares have different roles. It depends on what the company needs and what the investor is looking for.

From the company’s side

• Preferred shares allow companies to raise funds without expanding voting rights.
• They offer a way to attract funding while maintaining control over strategic decisions.
• Fixed dividend commitments can make preferred shares more appealing to large-scale or institutional investors.
• In some cases, issuing preferred shares may also help strengthen credit ratings or balance sheet flexibility.

From the investor’s side

• Common shares may align with those interested in long-term ownership and potential capital growth .
• Preferred shares are more often used by institutions seeking stable returns with lower exposure to share price swings.

How does this play out in Australia?

In Australia, common shares are the standard. They make up most of what you’ll find on the ASX.

Preferred shares, as we've said, are rare. They're not a regular feature of the local investing landscape – especially for everyday investors.

When similar structures do appear, they’re often called hybrid securities or convertible notes. These sit somewhere between debt and equity, and may carry fixed payments or conditions for conversion into shares.

Some managed funds and listed investment companies (LICs) may also hold or issue these types of instruments. But they’re generally not offered directly to retail investors.

ASX-listed companies tend to keep it simple – common shares for equity, and bonds or hybrids for income-focused structures. It’s a practical setup, shaped by regulation, demand, and investor preferences.

A simple analogy to tie it all together

Before you go, think of investing in shares like attending a concert.

Common shareholders are in general admission. You’re part of the action. You're in earshot of the artist or DJ, so you can make song requests. You might end up with the best experience – but you also make take some knocks in the mosh pit, or get stuck behind a group of unreasonably tall people. There’s no guarantee of comfort, space, or even a clear view.

Preferred shareholders are in reserved seating. You don’t get to request songs, but you’re guaranteed a seat. You’ll potentially get a more comfortable ride – fixed income, less volatility, and priority if things go wrong. But you give up some flexibility and excitement.

Neither is better across the board – they just suit different needs.

Two share types, many possible roles

Common and preferred shares aren’t in competition. Each comes with its own mix of risk, income, control and potential return.

If you're exploring these options, it’s worth thinking about your goals, how much risk you're comfortable with, and your investing timeframe. Are you chasing long-term gains? Looking for more predictable returns? Want a voice in company decisions?

If you're not ready to decide now, that’s fine too. Investing is a long game. Staying informed is a solid step forward.